NEWS / Foreign Exchange

The Carry-Trade, and the Whole Rest

A few days ago, Chairman of the Federal Reserve Ben Bernanke made a series of comments. Then, there were news outlets I was checking where in the sections related to the stock markets Mr. Bernanke's comments were rendered as suggesting the Federal Reserve wouldn't cut the interest rates anytime soon (the US stock markets were dropping that day), whereas in the sections related to currencies the very same comments were taken as pessimistic about the state of US economy (the US Dollar was under pressure that day).

Given the exuberant global correlations currently at work and the market's huge appetite for the carry-trade, I just don't see how Mr. Bernanke's same words can be rendered to basically suggest two opposite conclusions.

I am surprised about the US Dollar's performance against the European currencies as exhibited over the last few days. It should be all fair to say I had not expected such a behaviour - more correctly, I had not expected such a behaviour this fast.

I find the discrepancy between how the US Dollar has been moving recently versus the European currencies and the US Dollar's performance against higher-yielding currencies like the Australian and the New Zealand Dollar all the more interesting, although hardly surprising. This confirms once more that the FX world, just like the bulk of the most liquid global financial markets, remains splitted between the same two prevalent categories: the carry-trade, and the whole rest.